Kaufman Efficiency Ratio (KER)

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The Kaufman Efficiency Ratio (also known as the Efficiency Ratio or ER) is a technical indicator used in technical analysis to measure the efficiency of a financial instrument's price movement. It was developed by Perry J. Kaufman and is designed to help traders and analysts identify the trendiness or choppiness of a market.

The Kaufman Efficiency Ratio is calculated using the following formula:

ER = (Change in Price over N periods) / (Sum of the absolute price changes over N periods)

Here's how the formula works:

"Change in Price over N periods" is the net price change over a specified number of periods (usually days or bars). It's calculated by subtracting the closing price of N periods ago from the current closing price.

"Sum of the absolute price changes over N periods" is the sum of the absolute values of price changes (i.e., ignoring the direction) over the same N periods.

The resulting Efficiency Ratio (ER) value will fall within the range of 0 to 1, with 1 indicating a perfectly trending market and 0 indicating a perfectly choppy or range-bound market. In other words, the closer the ER is to 1, the stronger and more efficient the trend is perceived to be.